A utility with 12,000 customers around Lake Murray is asking the top state court to give it a rate hike denied for poor service.

Carolina Water Service will make its pitch to the state Supreme Court Wednesday that the rate hike rejection in fall 2011 prevents it from reducing billing mistakes and upgrading facilities.

But officials at the state Public Service Commission say the refusal is warranted, because service problems persist despite long-standing promises of improvement.

The court decision will culminate a battle over the company’s performance in providing water and sewer for 18,000 homes and businesses statewide, two-thirds of which are in the Ballentine, Lexington and Oak Grove areas.

Residents in those neighborhoods demand the utility end service problems before receiving higher rates.

But they are paying $1.03 to $3.45 extra monthly while the legal fight continues, with a guarantee of a refund plus interest if Carolina Water Service loses.

Complaints about poor service center on continued errors in billing and poor quality water that corrodes plumbing.

Billing inaccuracies stem mainly from a change in the way Carolina Water Service calculated amounts owed for usage, the utility says.

It should not be penalized for referring customers with billing problems to out-of-state centers since the company has no local office, the utility says.

Carolina Water Service is a subsidiary of a Chicago-based firm.

In their reply, PSC officials say company problems remain “widespread and pervasive” despite pledges to do better.

Carolina Water Service originally sought a rate hike of $2.2 million that would have raised bills as much as nearly $41 monthly, but later reduced its request to $1.2 million.

Officials at the state Office of Regulatory Staff – the representative of consumers in utility rate-making – recommended a rate hike of $501,000.

That’s the amount allowed while the legal battle is under way. If a refund comes, customers can receive it in cash or bill credits, officials said.

Rate hike denials happen occasionally, especially for utilities with customer service shortcomings, said Dukes Scott, executive director of the Office of Regulatory Staff.

If it sides with Carolina Water Service, the top state court is unlikely to specify a rate increase but tell the PSC to settle on the amount, he said.

The last rate hike for the utility occurred in 2008 after courts overturned a previous PSC rejection.